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German inflation steady as ECB action eyed

Official data revealed that German inflation was unchanged in August, a day ahead of region-wide figures which will be closely watched for an indication of how the European Central Bank (ECB) will act at its policy meeting next week.

Inflation in Germany came in at 0.8 percent year-on-year in August, according to figures published Thursday, unchanged from the month before. The data for the euro zone's largest economy are watched for an indication as to the region-wide inflation print, due to be published Friday.

Price reductions in Berlin, Germany
Sean Gallup | Getty Images
Price reductions in Berlin, Germany

It follows disappointing jobless data for Germany also published Thursday. There was an unexpected 1,000 rise in unemployment in August, significantly below expectations of a fall of 5,000.

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The data points have taken on particular importance ahead of the European Central Bank's next policy meeting on Thursday next week.

The euro zone has been battling with growth-sapping low inflation for months now; in July, inflation rose by just 0.4 percent compared to the same period last year - the lowest level seen since October 2009.

Fears that the region could be heading towards a period of deflation saw the ECB unveil a host of measures at its June meeting designed to give the euro zone's recovery a boost.

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Now, more disappointing economic data and hints of policy action by ECB President Mario Draghi at a speech in Jackson Hole last week have heightened expectations of more stimulus measures – possibly announced as early as next week. A growing number of economists now expect the ECB to launch some form of bond-buying – or quantitative easing (QE) – program in the coming months in an effort to bolster to region's stalling recovery.

Stephen King, HSBC's group chief economist, told CNBC Thursday that although such a measure was unlikely to be announced next week, "later this year, perhaps the beginning of next year, there's a bigger chance of it taking place."

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The German inflation figures come amid concerns about the strength of economic recovery in the country – often dubbed the "powerhouse of Europe".

Last week, the Ifo Business Climate index – a key measure of German business sentiment – fell short of analyst expectations. While second-quarter gross domestic product (GDP) data for the country showed its economy had contracted for the first time in over a year.

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